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Are employers obligated to provide severance pay in Rhode Island?

On Behalf of | Mar 25, 2024 | Employment Law

Onboarding a new employee can be a very expensive process. Organizations may pay for recruiters to locate the best candidates. They commit to a companion salary and benefits package. In some cases, employees may require relocation support and extensive training.

When workers leave a position at a company, that can be costly as well. Suddenly losing a worker can lead to recruitment and training costs, as well as the productivity consequences of having a vacant position. However, workers quitting may actually cost less than deciding to terminate someone’s employment.

If a company fires or lays off a worker, the affected employee might expect to receive a severance package. Severance packages may include a set amount of severance pay, a continuation of work benefits and other concessions made by the employer.

Do businesses operating in Rhode Island have a statutory requirement to provide severance pay?

The law regulates severance but does not require it

Rhode Island does have statutes regarding how to handle severance packages, including benefits rules and tax withholding requirements for severance pay provided to a worker after their termination. However, the law does not impose an obligation to provide severance pay to all workers at the time of their termination. Companies may choose to offer severance packages in certain cases, such as when the worker previously negotiated a severance pay clause as part of their contract.

An employee’s eligibility for severance pay depends on company policies, the terms of their employment contract and the circumstances leading to their termination. If someone’s contract already includes a requirement for severance pay, employers may have to abide by that arrangement. Of course, many contracts that require severance packages also include clauses that can eliminate that obligation in some scenarios, such as termination for cause.

Some organizations may find that severance packages provide important leverage when a worker exits the company. The employer can request certain concessions, such as a worker signing a non-disclosure agreement, in exchange for their severance pay. Companies often have to address severance requests on a case-by-case basis.

Understanding Rhode Island’s rules about key employment law issues may help employers make more informed decisions. Managers and executives may need to review contracts carefully when preparing to terminate a worker to prevent legal issues and potential litigation.